03/23 01:35 Tokyo Life Files for Protection With $8 Bln of Debts (Update9) By Tomomi Sekioka

Tokyo, March 23 (Bloomberg) -- Tokyo Mutual Life Insurance Co., which filed for court protection from creditors it owes 980 billion yen ($8 billion), became the seventh domestic insurer to founder since 1997, in the latest blow to Japan's battered banks.

The privately held insurer's debts exceed its assets by 34.1 billion yen, and it has 115 billion yen in unrealized losses on stock and property investments, Tokyo Life President Kenichi Nakamura said.

``A stockmarket downturn and the cancellation of policies was greater than we expected,'' he said. ``That forced us to give up our recovery plan.''

Daiwa Bank Ltd., the insurer's main creditor, said it would revise its own earnings forecast and report a loss for the year to March as a result of its 32 billion yen exposure.

Japanese insurers are struggling because guaranteed returns on policies sold a decade ago -- when interest rates rose to as high as 6 percent -- outweighed what they could earn on investments as the Bank of Japan held interest rates close to zero since September 1995.

As the number of policy cancellations rise, insurers are forced to sell stockholdings into a market that is close to its lowest level in 16 years.

Stock Rise

Today's filing came after Daiwa Bank, rejected the company's request for 30 billion yen of additional capital, part of a self- rescue plan that included allying with a foreign firm.

Stockmarket investors welcomed Daiwa's decision, seeing it as a sign banks are getting tough on companies that can't repay their loans.

``The bankruptcy news shows the effort by banks to really speed up their bad loan write-offs,'' said Hiroichi Nishi, a manager at Nikko Securities Co.'s equity department.

Still, the move sparked concern about the amount of bad loans at Japan's banks. Daiwa is the second lender to say it will report a loss in the year to March. Last week Sanwa Bank Ltd. and two merger partners said they will post a 223 billion yen loss as they double bad loan write-offs.

Daiwa shares, down more than 40 percent in the past year, fell as much as 5 yen or 3.3 percent to 149 yen.

Confidence Shaken

Tokyo's Life's filing comes after similar moves by Chiyoda Mutual Life Insurance Co. and Kyoei Life Insurance Co. last October shook public confidence in the industry.

Tokyo Life's daily cancellations rose to as much as four times last year's average after that, Nakamura said.

The insurer currently has about 600,000 policyholders, 25 percent fewer than its peak of 800,000 in late 1990. It has 3,385 employees, including 2,418 sales agents.

Like Chiyoda and Kyoei, Tokyo Life wants to revamp its business through a tie-up with a foreign partner that won't seek public funds, Tokyo Life administrator Masaharu Ohashi said. He declined to give more details.

Under Japanese law, life insurers that apply for court protection from creditors can cut guaranteed returns to policyholders in order to cover liabilities and revamp their businesses. Depending on the type of policy, customers may see their promised returns cut by as much as 50 percent.

Analysts said that may help Tokyo Life find a partner.

``It's good (deal) for a foreigner as it can take over policies,'' said Hiroshi Aketa, insurance research director at NLI Research Institute. The sponsor can also avoid a negative spread by cutting promised returns by 33 percent to 1.5 percent, he said.

Prudential Plc, the second-largest U.K. insurer, which acquired Japan's Orico Life Insurance Co. for $196 million, could be one of candidates, Aketa said. The U.K. company said it may buy another insurer to expand business in Japan's 30 trillion yen life insurance market, the world's largest by direct premium.

Tokyo Life, which last month sold its Tokyo headquarters building, had been in talks with four foreign companies, including General Electric Capital Corp. of the U.S., but failed to reach agreement, Nakamura said.

The Financial Services Agency said Tokyo Life's solvency margin ratio -- a key financial measure which reflects how much capital a company has to cover risk from claims and investment losses -- is 83 percent below the industry's requirement of 200 percent.

The life insurer had been counting on receiving a 50 billion yen capital injection -- including 30 billion yen from Daiwa -- to boost its solvency margin ratio to 250 percent by the end of March, Nakamura said.

Though Daiwa refused to inject money, it also said it may consider buying the insurer if asked, Daiwa Bank spokesman Yasushi Kodama said.

Both Daiwa Bank and Tokyo Life are part of the Nomura Group of companies. Tokyo Life was known as Nomura Life Insurance Co. until 1946, while Daiwa Bank was Osaka Nomura Bank before 1948.

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-- Carl Jenkins (somewherepress@aol.com), March 23, 2001